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tv   The Kudlow Report  CNBC  April 8, 2010 7:00pm-8:00pm EDT

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tonight on "the kudlow report," retail sales are booming, a 10% gain year over year in march. there's a v-shaped recovery out there that's going to surprise everyone in the months ahead. greece is collapsing, there's a run on their banks, their bonds are unsellable. c contagion is inevitable. a real estate property bubble. former citigroup executives grilled by the financial crisis panel. they had no answers for their enormous bond market mistakes that cost taxpayers $45 billion.
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but they got paid over $200 million for their failure. and ultrarich leftists want to atone for their guilt by paying higher taxes. we'll talk to one of them. and he wants to impose his neurotic plan on the rest of us. two former airline ceo's will tell us why there's another airline merger. "the kudlow report" begins right now. good evening, everyone, i'm larry kudlow. welcome back to "the kudlow report" where we believe free market capitalism is still the best prosperity. a blowout retail chain store sales, i mean a blowout number up 10% for the year ending march. that trumped a growing disaster in greece. and the dow managed to finish the day ahead by 30 points. briefly put, this blowout retail number confirms my view that the
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economy is actually much stronger than most people think. we have a v-shaped commodity boom. a v-shaped retail sales boom. there's a v-shaped profits boom, there's a v-shape ed ism boom a the beginning of a v-shaped jobs recovery. i want to make this point again, i don't know if it's forever, but the next 6 to 9 months look pretty good to me for the economy. the grooeeece story has disaste written all over it. there's a run on the greek banks developing. the overnight repoe market that funds banks is dead. we're going to ask our expert it is there's going to be a greek default. and there is a contagion question here that retailers themselves must answer. and what about the french banks that own the greek bonds. now, better, at least the prospects for a china trade war
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seem to be diminishing. tim geithner's diplomacy in beijing, no one knows if the chinese will revalue their currency or for that matter, jim chano's worries, are they facing a prosperity boom that may bust and sink their banks if it goes under. now, later on in the show, a special story. we're going to talk to a very rich guy. but he inherited his wealth from his great, great grandfather. this millionaire wants all wealthy people to pay even more taxes than they already do. guess what? the great, great grandfather started the business in 1865, that was an era where there were no income taxes at all. nor were there any capital gains taxes, nor was there an inheritance tax. are we talking liberal guilt here? i think so. stay with us for this debate. supply sider dan mitchell is
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going to take on mike lappem, the inherited rich guy. let's bring in our experts, ien want to talk about the retail boom, the run on the greek banks and what's really up with china. hello, everybody, david malpass i just want to say on the record, i am routing for you, run, david, run, i want you to do good in your senate race. >> thank you. >> you're an old friend. heck, i brought to you new york many years ago. before we get to greece, before i get to china, i want to talk about this retail sales boom, andy bush. al these numbers. >> okay. >> we have v-shaped commiditities, isms, profits, retail sales. you want to hear something, this is so incredible to me. cole's up 22%, saks up 13%. target up 10%. macy's up 11%. this economy is outperforming
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everybody's expectations, i just want to spend a minute or two on this particular topic. >> sure. and i'll give you another big positive that -- just to connect the dots, maybe just maybe this is the start of the bottom for commercial real estate as well. because these retail stores like to take up space. if they start to expand, maybe that will stabilize what's happening in the commercial space. i'll go you one further, this is really strong ramifications for that end of the market, which as you know, ben bernanke keeps bringing it up as one of the worst sections of the economy, and that would be a really big help for -- overall for banks and lending down the road. >> that's very interesting. dave, we want to come to you on this. i think the economy is going to outperform the federal reserve's expectations, and the expectations of everybody else. i don't think you agree with me, tell me why not. >> no, i do agree with you, on that. i think we're in a -- i think their recovery is strengthening and will be a strong one.
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you know, the oddity is the near 0% interest rate that the federal reserve keeps imposing on savers, if you're trying to save money and earning interest, you aren't earning nearly enough to pay for the inflation and the growth that's coming out of this recovery. i think the feds should be higher. >> so you're saying basically -- that's an interesting point -- it doesn't pay to save at a 0% interest rate or half a%, so people are out there consuming like crazy, is that your point? >> that's right, but remember who gets the subsidy in the very low interest rates, the biggest borrower is the federal government, they're getting this -- this great rate, meaning a low rate, that's causing the capital in the economy to be -- all of it to flow through the federal government, they're picking the winners and losers. that concerns me for the long run, in the short run, if just means there's a lot of money out there. >> that's the thing, andy bush, we have to face higher tax
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rates, lots more regulations, who knows about the outlet four taxes. paul talking about a tax yesterday. the white house is running away from volcker, are they really running away from volcker. i'm not making a long, long-term case. i'm saying between now and maybe the end of the year, people are going toll take income sooner to beat the taxman in 2011, unless the bush tax cuts are extended. in other words, i'm just saying right in here, it has a boomy feel, and i don't think the federal reserve boys and girls really get this. >> no, i don't think so either. i'm with david, i think we should have higher short-term rates, and i'll go with one better, actually. >> the guy's my new hero. >> he's my new hero. >> he's shooting it. >> did you read his article? did you read his speech online? >> yes, yes. >> it's a phenomenal speech. he says they're creating new imbalances. sorry. >> that's right. and that's the problem -- that's
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really going to be the problem down the road. i think that's the key right here, is that he's saying, look, we're no longer in a crisis, and yet we have this same monetary strung tour that we had during the crisis. do we still need that? i think that's a great point to make. lifting the fed funds up to 1%,not going to crush the economy, and i think, you know, within the next maybe 6 to months, we could get something like that. >> all right, tom hone, president of the kansas city fed. >> yes, david? >> the jobs problem is still there for small businesses. meaning private sector job creation is not occurring very strongly yet, and it should be. at this point in an upswing in the economy. part of that comes back to just washington spending a whole bunch of money. so as you're sitting there with a small business, you have to wonder why hire when washington's going to be allocating all of the capital? i think that remains a big probl problem. >> i know it's a big long-term
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problem. the household employment survey, which does pick up some of the small owner operated jobs, gained 1.1 million workers in the first quarter. but let me move on. >> yes. >> dave malpass. >> larry -- >> i don't have enough time. >> that's a misleading piece of data. >> oh, no. >> december was very weak in that survey, so you picked the three months that worked for that survey. >> i do, i've made a whole career out of picking the right three months. it's what i do. i think there's a trend in place. however, you may be right. let me go on. there's beginning to be a run on the deposits of greek banks, the repoe repurchase funding market is closed down. we don't really understand what the so-called assistance package was. where is this going to lead? you know, dave, the french banks, when we talk about
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contagion. it could also be france that owns a lot of greek paper? are they going to defaurlt? where are we going on this greek story? >> i don't know if they'll default. it is a very serious situation, and even if there is a rescue package, still means that greece right now is being starved for capital. the private sector is turning away from greece. i think that the contagion, the issue you raised to france, probably france is big enough to afford the losses that are -- that they may take on greece. i'm more worried, i think about the contagion to the weaker countries in europe. the private sector turns away from the banks. it makes it hard for them to get capitol, and that means hard to create jobs. they all need better jobs. >> i want to ask you about the likelihood or prospects or odds of a greek bond default of a
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greek government default. and i want to ask you what that means for the euro, for the dollar, for the u.s. so stock market. greece is a little country, but all of a sudden it looms large on the global stage, andy. walk me through your thinking. >> sure, as soon as i heard about the banks, and started understanding what was going on with the repoe situation. it remaineded me of bear stearns, in the beginning of 2007, and that's really what gets me nervous about what's happening in greece. and who would have thought that that's really where this -- the major problems are going to emanate from. as you know, greek banks own a lot of greek government debt. that's the other problem they have. they're going to be starved for cash, nobody really wants to be a counter party for them. or at least that's one of the biggest problems they have. the banks are going to lead to the problems that the governments are going to have that will trigger an imf -- >> the greek banks? >> yes, the greek banks lead to a problem with the government being unable to come up with 2500 euros they need by may.
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they am be bailed out by the imf -- again, this is something nay anticipated, i've been telling my clients for a while. every time there's an auction in greece, you're going to run through this problem, this fire drill. whether or not they get the funding, and clearly, when two-year notes and greek debt are 660 basis points above german notes, you have a real problem funding yourself. >> dave malpass, i want to close out the greek thing and get to china. what does it mean if andy busch is correct and he may be, the imf is going to have the ultimate rescue package for greece. what does that mean. what does that mean for the whole european on onand the euro, will the euro survive this? >> yes, the imf have gone into developing countries, smaller, weaker, less wealthy countries and prescribed programs that actually in the end, i think, you end up hurting them by
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prescribing devaluations and higher tax rates. in greece it would be good to have the imf in, they may try to get the government to spend less money. >> in all the years i've known you, i've never heard you say a positive sill balance about the imf. i used to argue, and you've heard this before, if you want to look at where the great next country revolution unrest is going to be, just get the imf travel schedule. you're saying the imf might do good work in greece? is such a thing possible? >> i think some part of this problem, not own until greece, but also in the u.s. states and in the u.s. federal government is people aren't telling the truth about the debt numbers and about the spending numbers, and the imf actually is quite good at doing accounting, and so as they go into a country, they say, show me the books and the country does. and i think that would help in new york state in washington, d.c., if we could get some of that also. >> how about los angeles?
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it might help in los angeles as well. >> let me get this right. i'm going to wait. does this mean that the imf is going to come in to rescue los angeles, california, new york, new jersey? are we going to have imf bailouts because david malpass is not soft on the imf, and he's running for the senate in new york state, and we want him to win. but i think he's going to bring the imf in. >> no, no, no, larry. >> no, i don't mean that. >> honest accounting. >> david brings up a really good point. we need to shine a light on the major problems we have with debt. whether it's the state governments, municipalities or whatever, so we can look at wherever the problems emanate from, and in greece, we know it emanates from overpaying public workers, and promising pensions that are much larger than what the state can support, and i think that's indemic throughout the united states as well. >> one last one, i only have
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time, i need a one sentence answer. is the nimby going up or not? the chinese currency. >> i think it will go up, but they're not quite there yet. china would like to see the u.s. do something to control our spending, something to reduce our debt over the long run, so i think it's a negotiation, but it's constructive in the direction it's headed right now. and i think there will be some chinese issue on revaluation by later this year. >> andy bush, do you agree with dave? >> real quick, 2 to 4% reval, with a wider band to trade in, so the currency goes back to where it was prior to the crisis in 2008. >> all right. >> i think the chinese were very nervous about losing access to u.s. markets. i think that's why they're going to move. >> i think one thing to come out of this, we can avoid a trade war. if it means a 2 to 3% revaluation, i'm willing to
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avoid that deal every day of the week. andy busch, we're going to get you to run in illinois, my friend. thank you both for helping us tonight. coming up, does the united/u.s. air merger make any sense at all? we have two former big time airline executives, continental chairman and ceo and former amr chairman and ceo, robert crandall. they'll share their wisdom when "the kudlow report" returns.
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merger talks between united airlines and usairways are back on. wall street cheered today both company's shares went up. let's see what two airline industry veterans think. you're now a cnbc contributor.
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plus, that weren't enough, former amr chairman and ceo robert crandall. never have i been in the presence of so much talent i can't stand it. mr. crandall, let me begin with you, does this deal make any sense? >> no. i think this is very high level -- i think this is very high level poker, larry. i think united wants to merge with continental, and this is a game of let's see if we can't scare the other guy out of the weeds. the merger between united and u.s. airways is uniquely handicapped. the systems don't go very well together. usairways hasn't managed to merge their labor groups from their existing merger, so they still have east and west segments of their labor groups. no, i don't think it makes any sense. i think in fact what they're trying to do is scare up interest at continental.
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>> i love a blunt spokesman. do you agree with mr. crandall? >> absolutely. it doesn't make any sense. however, i think they're out of ideas. and if continental won't play, maybe this is the only thing they can do. as bob says, there's a lot of overlap. it doesn't really work from what united needs, especially latin america and europe presence, which they lack. but giving that they can't get that, maybe this is what they're going to do instead. they have to do something. they're not doing well as the status quo. >> nobody's making any money. that's not true. southwest is profitable. i don't think anybody else is profitable. is this like too many seats, chasing too few passengers? is this the ongoing problem in that business? >> no, i don't think it's so much too many seats chasing too few passengers. look, you know, and in this respect i disagree with almost everybody. i think the industry -- this is an industry that needs some regulation. the fact is,it isn't that we
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have too many seats, it's that we have too many alternative products offering exactly the same thing. let me give you a great example. delta has recently announced they're going to add 12 daily flights between laguardia and chicago. we have all the service we need between laguardia and chicago. delta brings nothing to the party. all they're going to do is drive down prices so delta can get traffic in the area. >> that's the dumbest thing i've ever heard, why are they doing this? >> why are they doing it? because they want to get some share of the traffic that feeds between chicago and new york, so they can feed it on the rest of their system. and this is kind of the fundamental reason that -- for a whole lot of unique reasons, the airline industry needs a bit more regulation than it has, and
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the industry has been a catastrophe -- an economic catastrophe for many years. gordon and i briefly saved it, but then it went back in the tank again. >> you guys may have to come back in, save it again. what do you think about what bob crandall's saying, what is up with this? you have united going to chicago, american going to chicago, you have midway -- midwest airlines? >> exactly. >> what do we need all this stuff for? this is insanity. >> we only need one airline, continental could handle it. just like germany's got one, and france has one. but bob's right, we don't need 19 airlines that take 98% of the traffic in this country. >> does that mean we're going -- >> consolidation does make some sense, to reduce your costs and get some of the nonvalue added costs out of it. whether this merger makes sense, i may be right, it's something to get continental to play. but consolidation does make
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sense. fewer would be better. >> fine, bob crandall, i don't know if you have to regulate that, the market is going to force that. what do we need, five, six, eight global airlines, we should have international capital investments? that's something they prevented if i understand correctly. we don't need all these domestic air carriers, bob. >> we probably don't need all the air carriers in the world, but it would be nice if u.s. internet governmental policy would try to give some attention to the fact that it would be nice if we ended up with weight global airlines, if two or three of them were u.s. airlines. and the u.s. government has done everything possible to make it impossible for u.s. airlines to prevail -- >> why is that? >> why is that, bob? >> well, why? why did they do it? >> yeah, what is the reason you're saying the u.s. government has made it impossible to have this -- downsizing mergers. >> here's a great example.
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the u.s. government and the japanese government negotiated a treaty which says a certain number of u.s. airlines can fly a certain number of flights to japan. terrific, the japanese airlines go ahead and fly to the united states, and we're happy to have them, but when the u.s. airlines go to japan, the japanese say, this is a treaty, but unhappily, we have no landing spots. there's a guy raising potatoes right in the middle of the airport. and we can't move the guy that's raising potatoes because he's been there for 14 generations. now, this is stupid. it's just flat stupid. >> okay, it does sound stupid, gordon. is this a plot by continental to prevent these kinds of combinations? >> oh, no. >> are you behind the potato farmers who are taking up the jet airway spaces? >> well, no, but those slots that bob uses as an example aren't a way to control traffic, and countries do use them. we use them in new york
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ourselves. but what really is -- continental is doing well on its own, and would do better as a united if they were able to acquire united on their own in a way to operate one air carrier. whether this particular merger, united's frustrated, it goes to the other girl at the dance, i'm not sure it makes any sense. bob may be right, it may be just a ploy to force continental into moving, which would probably be a good thing. >> are you going to come back into the business, gordon? >> no, i'm staying on cnbc with you, larry. >> that's a good place to be. mr. crandall, are you going to run for the senate? i want you to run for the senate. >> no, no, i'm not running for the senate. unless you're prepared to finance me, larry, then i will. >> all right. that's another segment. >> you would do good, bob. >> i think you'd both be terrific. robert crandall, very, very interesting stuff. coming up in the kudlow report, ultrarich leftist?
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that's tough, but that's the title of a blog, they want to atone for their guilt by paying higher and higher taxes. we will talk to one of those millionaires who inherited his wealth. he wants to impose his ideas on the rest of us. i'm going to resist. this is a fascinating thing. millionaires want more and higher taxes. by the way, they could volunteer the money to the treasury department. go ahead and do it, see if i care.
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there you've got a new look at the future of the republican party tonight. thousands gather for the southern republican leadership conference in new orleans. it's considered the unofficial kickoff to the 2012 presidential cycle. one such contender, former house speaker newt gingrich who once led the party to his first house majority in 40 years will speak to the crowd tonight. i believe governor pawlenty will be there. i hear sarah palin will also be there. they're getting ready for the fireworks. the kickoff for the 2012 campaign. first we have to get through november 2010. next up, our ultrarich leftists, are they seeking to atone for their guilt by paying higher taxes to uncle sam? according to one of my next guests, the answer is yes. my other guest is one of those
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ultrarich, he wants to give more of his money to the government. very interesting. we have mike lappem, he's cofound isser and director of responsible wealth and dan richard from the cato institute. i read your story with great interest. you're sort of an heir to this paper and pulp company that was started by your great great grandfather. during that era, there were no income taxes and there were no capital gaines or inheritance taxes. i want to ask you, would you today have your fortune if your great great grandfather had to pay the kind of taxes that you are recommending? >> yeah, i think i would. we've had these bush tax cuts in place for eight years. george bush came into office in 2001, he was facing a $5.1
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trillion surplus projected for 10 years, and what did he do with that? he decided to put most of that into tax breaks that he -- most of which went to upper income folks over -- close to 50% went to just the top 5% alone. and we've been wealthy people have been on a tax holiday for eight years, it's time to turn those around. they've cost us too much. they don't make any -- they didn't make any sense when they were put into place. they make even less sense now. how much sense does it make to tax wealthy people who are getting money from investment income at 15%, when other people are paying 25, 33%? it doesn't make any sense. >> 50%, i want to make this point, though. i have a quarrel with your newly air cal analysis. there's all sorts of newspaper reports. 50%, 47% of people who filed for taxes do not even pay the income
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tax at all. and the top -- >> okay. >> and -- this is an irs number, the top 5% are paying 40% in taxes. and the top 10% are paying 75% in taxes. my point to you, the rich, so called, and by the way, i like rich people, they finance new businesses and new inventions that hire all kinds of workers and make america prosperous. they're already paying virtually the full boat, sir. that's the part i don't understand. >> the report that came out today, the ap story that came out today, i would consider an insult to the people in the bottom 50% who are paying quite a bit of taxes. they're paying their payroll tax, medicaid, medicare, they are paying sales tax, gasoline tax. they are working hard -- >> that may be true, but they're not paying any income tamms. and i think that's exactly wrong for this country.
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>> one tax. >> income tax is the largest tax in the united states. it is just short of $1 trillion. dan mitchell, come in here. mr. lappem, did not answer my question. his great great grandfather didn't have to pay any income taxes or capital gains taxes. >> i think your point is exactly right. when we became a rich country in the 1800s, for that matter, the same thing is true of western europe. there were no income taxes. these things came into play around the turn of the century, and ever since then, politicians have been pushing higher tax rates, the income taxes finance more government spending. and, of course, the politicians want to add on top of that. when i see somebody who's rich who wants to pull up the ladder of opportunity and make it hard for the rest of us to get rich,
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it drives me crazy. we want more opportunity in america. and having high tax rates. the rich people have all the lawyers, lobbyists and accountants, they'll figure out how to survive. i want to become rich some day myself. and i want my neighbor's to become rich. and high tax rates are a ceiling we're all going to bump our head against. >> the question i have on this. i don't want to be disrespectful, i want to ask you this. you were fortunate enough and blessed enough to inherit your wealth. there's nothing wrong with that. but the reality is, for those people who were not rich, why not reward them with greater success in income and capital gains and what not on an after tax basis. that's the basic incentive system. that's the problem i have. i don't want to make the rich richer, necessarily, i'm not against that. i want to make the nonrich rich. but if we tax them heavily, if
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they cross a $200,000 income line. they will not get rich, they will not have the savings and the investment to do what your great great grandfather did. >> no one's talking about pulling up the ladder. we're talking about raising taxes on people above $250,000 income. mr. mitchell is offbase when he says, there have been taxes in place for the entire last century. people have made fortunes and paid the estate tax and passed it on. people did very well. under clinton, the economy grew very well when tax rates were higher. it's just disingenuous to say this stuff. our members understand that they have done well. their incomes are higher, their wealth is higher because of the contributions of a lot of people in this society, and they recognize that they should pay a higher rate. people at the top of our economy with higher income, higher wealth, it's time for them to
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pay a higher rate. they're going to our tax calculator at responsiblewealth.org and figuring out their bush tax cuts and pledging to give the income away. >> 75% of the bush tax cuts went to the nonrich. that's basically what mr. obama is preserving. it is not true that bush's tax cuts went to the rich. only the top quarter, 75%. that's why obama is carrying through on that. >> dan, i didn't say that they all went to the rich. >> dan mitchell, mr. lappem says you're offbase in a variety of ways, do you care to respond to that? >> there's no question, people get rich at all points in american history even during world war ii, i'm sure people got rich when we had top tax rates of more than 90%. two points i want to make. the tax rate on the rich is not 15%, that's a double layer of taxation on top of income that was already taxed at 35 or 39.6.
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so you want to measure double taxation, warren buffett makes that mistake, and mike's making that mistake. the only point i want to make is, i invite mike, give all your money to nancy pelosi and harry reid, if you really think they're going to spend it correctly. don't drag the rest of the country into that private hell of bigger government and higher tax rates. >> isn't there a website where you can make a voluntary tax contribution? >> yes, i listed that website in the blog i did. >> all right. i have to leave it there. >> i think your guest should check with an accountant about how the system actually works. >> i have to leave it there. >> it's just not accurate. >> thank you very, very much. me, i loved it when we had no income tax in america. by the way, we had no income tax, no inheritance tax, no capital gaines tax. the u.s. dollar was tied to gold. the last quarter of the 19th century was the most extraordinary prosperity in this
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entire country and a great time for at vances in the arts and culture and literature as per the chicago exposition, which was in the late 19th century. i think there's a link there. anyway, coming up on "the kudlow report" tiger's back. he had his best first round in the masters ever.
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by the way, the chicago fair was either 1893 or 1896. many people think it was the height of american culture and wealth. no income tax, dollar linked to gold. not a coincidence. tiger is back on the golf course for the first time since news of his sex scandal broke last item. he had the best first round in the masters ever. darren lavell was carrying
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tiger's bag from augusta national. >> not quite carrying tiger's back. for all those doubters who said there would be too much distraction, he didn't practice enough. 4 under par, which is two strokes behind fred couples at 6 under par. we went out there, he was calm, the crowd was cheering. it was really amazing. no distractions, really. he eagled both 8 and 15. as you said, the first time he's broken 70 in the first round of the masters in 16 tries. that's his best ever. the only distractions actually came from in the air with a plane that said, tiger did you mean bootyism? and sex addict? yeah, sure, right, me too. a lot of people watching this is going to shape up to be the highest rated golf tournament of all time if it goes into the weekend and tiger doing so well. not only do you have tiger woods at 4 under par, anthony kim at 4 under par. tom watson, 60-year-old thompson
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son at 5 under par. phil mickelson, who is probably second after tiger at 5 after par, and fred couples, a blast from the past leading at 6 under par. tiger tees off tomorrow at 10:35 a.m. eastern time. back to you, larry. >> darren, how old is freddie couples, because i always route for the old card? >> i think he's 50. you have watson at 60, couples around 50, and then tiger and then the young wons. and phil mickelson, really is shaping up to be an incredible tournament. tiger was smiling. i've never seen him acknowledge the crowd on a hole three or four times. they were cheering for a length of time, as if they were appreciating him on a sunday. it was different, and these people here are happy he's back. >> darren rovell, thank you very much. former citigroup executives grilled by the financial crisis panel. chuck prince and robert rubin
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had no answers for their incredible bombed market mistakes that cost american taxpayers $45 billion, but these two got paid over $200 million for their failures. prince at least had the class to apologize. rubin did not. we will carve this up. keep it right here.
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former citigroup execs hit capitol hill today to offer up a meaculpa in the 2008 credit crisis. sort of. take a listen. >> let me start by saying i'm sorry. i'm sorry that our management team, starting with me, like so many others, could not see the unprecedented market collapse that lay before us. >> we all bare responsibility for not recognizing this, and i deeply regret that. >> that's all fine and dandy, but i didn't hear one answer from their enormous bond market mistakes that cost taxpayers $45 billion. not really a single answer. on top of that 45 billion of taxpayer bailout nation, there
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was $300 billion in loan guarantees. i also didn't hear them offer any apologies for their huge 0 $200 million payouts. which we now have to ask, was that deserved? we got cnbc contributor jerry boyer and matt miller, washington post columnist and host of public radio's left, right and center, matt wrote an excellent column in the post called rescuing capitalism from wall street. this is a great column. you ask, and i think correctly, at what point does the u big witty of the undeserving rich become so corrosive in a democracy that it sparks a backlash that wrongly discredits capitalism all together? please expand? >> i think what's corrosive for our market system is not obviously wealth creation. when steve jobs creates an ipod
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and gets rich, that's the american dream, innovation, and everybody is excited about that. that's what america's economy is all about. when you've got a kind of racquet going on, and this happened all through wall street, through this crisis, where you have person after person on top of these institutions who walk away with 100 million or $200 million, even though their institution lays in ruins, and the taxpayers bail it out. that's bad, it's bad for capitalism. the question,people are angry about that, and we've got to do something to change the incentives in this system, or else we're going to see a replay. it doesn't make any difference whether you make the right decisions or the wrong decisions, you're going to walk away rich. something's deeply wrong. >> that is not the free market incentive system that i know about. that's what really struck me about your column, jerry boyer. welcome back. prince earned $120 million for being ceo for four years. robert rubin, $115 million he
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was there for ten years. prince at least had the grace to apologize. rubin never apologized, he said, i regret that all this happened. here's the thing, they both screwed up. >> mistakes were made. collateralized debt operations, probably the riskiest most difficult kind of bond market package. citibank risked the house, didn't get it, had no controls and brought the bank down. >> rubin pushed him toward it. >> now, he said -- i want to read you, let's stay with that thought. here's what phil angeles says, the head of the commission, to rubin, i don't know that you can have it both ways. you're either pulling the levers or asleep at the switch. now, rubin doesn't -- he's never really answered this, jerry. >> no, he hasn't. and look, he was brought -- he want brought in to do day to day
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management, he was brought in. at citigroup as chairman, he wasn't really a financial manager, he was really a kind of super lobbyist. this is crony capitalism, and what really bothers me about what's happened in the past few years is, that crony capitalism has committed many sins and some crimes and free market capitalism is getting blamed for it, and it just doesn't seem fair, at this level. you remember, larry, you talked about -- remember that story about robert rubin on the phone when they used freedom of information act? he's on the phone with bernanke, 40, 50 times? he's on the phone with paulson, there's this interplay at this level between government and in the financial sector that's incestuous. and when you get an incestuous match, the baby's don't look so good. >> i understand. i agree with everything you've said. i have said in the past about rubin that he gave distinguished
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service as treasury secretary. you have these outsized pay packages, it may be the tip of the iceberg for all these incredibly bad mistakes that nearly brought the whole house down. what do we do about this? take your argument about the ubiquity of the undeserving rich becoming so corrosive in democracy. what do we do about this? >> i any government can't regulate the pay packages of these private corporations. they can try to shame people for it, that's part of what happened at the hearing today. it may be that we need to have the activist investors, the pension funds, state controllers who are controlling the big state pension funds, demand changes in corporate governance. so that all these millions and millions of dollars that get paid out on wall street in bonuses for these mortgage related securities that ended up cratering two years later, all those guys retired. we don't know their names,
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they're partly responsible for what's happened. until we change the pay packages on wall street and the way compensation is done, and try to mimic the old classic wall street partnerships -- >> that's right, that's where i grew up on wall street, the old partnership, that's exactly right. jerry bowyer, do we demand claw backs for this as payment? >> yes, clawbacks. if you want fairness, go for equity. have people be partners for a long time, and then they retire rich, and only if their investments work out for the long run. >> thank you, great stuff. coming up, my last word, please stay with us on "the kudlow report." it's monday,
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don't penalize millionaires by taxing them to death. we want the nonrich to get rich, and that means an incentive and reward system the old fashioned way. i'll be back tomorrow night.

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